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February 20, 2013

Get Ready for Gender-Based Pricing on LTC Insurance

The LTC industry is making the move to ‘restore stability and regain profitability,’ says Kitces

Michael Kitces says gender-distinct pricing could be an industry standard by year-end.

A new twist is coming to long-term care insurance: gender-based pricing, and women can expect to pay 20% to 40% more for coverage than men.

So says Michael Kitces, an AdvisorOne contributor, in his Wednesday Nerd’s Eye View blog post. Kitces notes that the LTC industry is moving toward gender-based pricing in order to help “restore stability and regain profitability.”

Genworth, the market leader in LTC coverage, will be the first to venture down the gender-based pricing path, and is “anticipated to begin receiving approvals to issue new policies with gender-distinct costs as soon as April,” Kitces writes.

“Once the changes take effect, it’s likely that most other major LTC insurance companies will follow suit as well,” Kitces says, “and the new cost structure may be an industry standard by the end of the year.”

A Genworth spokesperson told AdvisorOne on Wednesday that Genworth will launch in April its newest long-term care insurance product, Privileged Choice Flex 2. Genworth, the spokesperson said, "will be among the first major carriers to implement gender-distinct pricing with this product."

Women applying for coverage individually will receive higher rates than men applying individually, the spokesperson said, and for both individual rates, the applicant will receive higher rates than couples. "Approximately 80% of all Genworth LTCI applicants are couples; approximately 10% of Genworth applicants are individual women," the spokesperson said. The change will not impact current policyholders, the spokesperson said. "Two states require unisex rates: Montana and Colorado."

"The change is being made now to reflect our actual claims experience and help stabilize pricing," the spokesperson added. "The percentage increase will vary by issue age and the benefits selected by the applicant. The changes will go into effect as states approve the product beginning in the first half of 2013."

While gender-based cost differences occur in life insurance, until now the LTCI industry has avoided charging men and women different premiums.

Rob Cohen, executive vice president for the American Association for Long-Term Care (ACSIA), one of the nation’s leading marketers of long-term care insurance, agreed in a recent statement that’s about to change.

Cohen notes that research performed by ACSIA shows that women represent 2/3 of all new claims. “Considering the industry has paid out a projected $7 billion in benefits, this represents a significant larger risk for insurance companies. Soon, at least the majority, if not virtually all insurance companies, will begin charging premiums which represent the individual risk based on gender.”

Women, Cohen said, “live longer than men and thus require extended long-term health care more often and longer than men do. While this does not diminish the impact and risk of long-term care for men, this risk is larger for women. Premiums will soon reflect this fact.”

The primary impact of the cost change will be on women who apply for a policy as an individual, Kitces says. “Premiums are anticipated to be as much as 20% to 40% higher than for men when purchasing a comparable policy at a comparable age.”

In the near term, Kitces says that those considering getting a new LTC policy should act before the rate hikes take effect. Once the new pricing is in place, Kitces warns that the only options may be to “adjust the selected benefits to try to get premiums down to an affordable point, consider a hybrid LTC policy as an alternative—although such policies have challenges of their own—or wait to see if the latest commission on LTC—required as a part of the fiscal cliff legislation—can come up with a new national solution to the country’s LTC woes.”